Supplemental Retirement Plan (SERP)

There are two types of Supplemental Executive Retirement Plans (SERPs): (1) Unfunded; and (2) funded. An unfunded SERP is when the employer contractually promises to pay certain compensation-related benefits at a date in the future. However, that contractual agreement or promise is not secured. A funded SERP is when the company puts the assets in a trust account¹.

Most companies use cash value life insurance to fund SERPs. The company purchases a life insurance policy on the key employee’s life that is sufficient to provide the future benefits outlined in the agreement. The company pays the premiums, owns the policy and is the policy beneficiary¹².

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(1) The Supplemental Executive Retirement Plan (SERP) Explained. https://www.keypersoninsurance.com/supplemental-executive-retirement/.

(2) Supplemental Executive Retirement Plans | The Hartford. https://www.thehartford.com/business-insurance/strategy/compensating-key-employees/serp.

(3) Supplemental Executive Retirement Plans (SERPs) - SmartAsset. https://smartasset.com/retirement/supplemental-retirement-plan.

(4) Supplemental Executive Retirement Plan (SERP) Pros & Cons - Investopedia. https://www.investopedia.com/terms/s/serp.asp.

(5) What Is a Supplemental Executive Retirement Plan? - The Balance. https://www.thebalancemoney.com/what-is-a-supplement-executive-retirement-plan-serp-4171817.